What’s Next for Impact Investing Series: : 5 Things You Need to Know About Impact Investing Metrics
Editor’s note: The last year has seen significant churn in the impact investing sector, most notably with the wind down of E+Co. Today we’re starting a new ongoing series, What’s Next for Impact Investing, in which fund managers and other practitioners discuss how they are building and evolving business models to achieve both maximum social impact and solid returns. The series wil be archived on the NextBillion Big Idea page. This article also can be found on the IDB blog.
Right after the IDB joined the Global Impact Investing Network (GIIN), the Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ), which focuses on Base of the Pyramid sustainable business models, restructured its impact measurement system across its grant and investment portfolio, puttingImpact Reporting & Investment Standard (IRIS) metrics at its core.
As a result, we now have a better picture of the portfolio’s overall performance, we can track and aggregate data to show how this impact builds on top of our development objectives and we are able to connect our internal performance tracking tools with those of the impact investing community.
Since bridging both systems in 2010 we have learned five lessons:
1. The reporting requirements should be simple and in linewith the client companies’ operations. (E.g. Number of individuals benefitting from the product or service offered, number of housing units financed, number of smallholder farmers or number of students enrolled).
2. It is necessary to involve both our own investment officers and the investee companies in the measuring and tracking process, training them on the importance of metrics and reporting.
3. Tracking performance helps better communicate with involved stakeholders since we are all speaking the same language and using the same type of indicators.
4. Not only investments need to be tracked. Grant-funded projects with potential to become profitable and sustainable business models need to be monitored from the start. This allows for smarter decisions regarding future financing, particularly involving debt.
5. Metrics must be negotiated during due diligence and be formally included in the loan agreements with the IDB.
Early in 2013, GIIN published the OMJ IRIS User Case as part of a series of cases that highlight key features of effective impact measurement programs and metrics frameworks implemented by IRIS users. There you can find out more details about the challenges we faced, the improvements we have made, as well as lessons learned. Any person or organization interested in impact measurement and performance tracking would find these series highly useful.
You can learn more about Base of the Pyramid business opportunities in Latin America and the Caribbean next week during the IDB’s annual meeting in Panama City. You can watch the live webcast of the seminar Unlocking scale: tapping existing platforms for reaching the Base of the Pyramid on March 15.